Borrower who met with bank's board of directors to explain transactions that were tantamount to recapitalization of the bank, and who accompanied bank officials to discussthe transactions with state regulators, was not "institution affiliated party" covered by the Federal Deposit Insurance Act.

[.1]Institution-Affiliated PartiesDefinition
FDIC has broad discretion to determine, on a case-by-case basis, whether a person is an institution-affiliated party.

[.2]Institution-Affiliated PartiesDefinition
FDI Act does not cover all participants to unusual, or even improper, transactions.

[.3]Institution-Affiliated PartiesBorrower as
Borrower was not in a position to materially influence the activities of bank such that he could fairly be categorized as an institution-affiliated party.

In the Matter ofROGER J. LEBLANC,
individually and as an institution-affiliated party, and/or as aperson participating in theconduct of the affairs of{{12-31-95 p.A-2731}}FIRST BANK, PINEVILLE,LOUISIANAPINEVILLE,LOUISIANA
(Insured State Nonmember Bank)DECISION AND ORDERFDIC-94-17k

INTRODUCTION

This matter is before the Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") following the issuance of a Recommended Decision ("R.D.") by Administrative Law Judge Arthur L. Shipe ("ALJ").1 The ALJ recommended dismissal of the charges against Roger J. LeBlanc ("Respondent"), on the ground that he was not an "institution-affiliated party" ("IAP") as that term is defined in section 3(u) and used in section 8(i)(2) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1813(u) and 1818(i)(2).
The case arises out of a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice") issued April 12, 1994, against Respondent and his brother, Jules B. LeBlanc, III.2 The Notice alleges that Respondent violated section 19 of the FDI Act, 12 U.S.C. § 1829,3 engaged or participated in unsafe and unsound banking practices, and breached fiduciary duties to First Bank, Pineville, Louisiana, Pineville, Louisiana ("Bank").
A hearing was held January 10-12, 1995, post-hearing initial and reply briefs were filed and the R.D. was issued June 7, 1995. FDIC Enforcement Counsel filed Exceptions to the R.D.4
Following a review of the record the Board affirms the recommendation of the ALJ to dismiss the Notice against Respondent and hereby adopts the Recommended Decision.

BACKGROUND

In the spring of 1989, Respondent sought a loan from the Bank to start a new insurance company or purchase an existing insurance company. The loan request was denied. Tr. at 69. Following joint examination of the Bank in July 1989, by the FDIC and Louisiana Office of Financial Institutions ("OFI"), Bank management met with representatives of the FDIC and OFI and agreed to remove $1.7 million in classified assets by September 30, 1989, the next Call Report date, and to recapitalize by November 1, 1989.5 Shortly thereafter, the Bank chairman and principal shareholder approached Respondent and offered to loan him the funds to acquire an insurance company if the insurance company would help the Bank. On August 7, 1989, Respondent's brother, Jules LeBlanc, was hired as special counsel by the Bank (and subsequently by Respondent's companies) to facilitate resolution of the Bank's regulatory problems. The Bank, Respondent and his brother, knew that the key to the success of this plan was the approval of the regulators. Tr. at 57. A strategic decision was made to first seek approval of the OFI Commissioner with the hope that he would then be helpful in convincing the FDIC to agree to the transaction. R.D. at 3. Respondent accompanied several Bank officials to a meeting with the OFI Commissioner in early August to discuss the proposed transactions. The Commissioner did not object to the proposal.
On August 9 and 18, 1989, the Bank extended two loans totalling $350,000 to one1 Citations to the record shall be:
Recommended Decision - "R.D. at ____."
Transcripts - "Tr. at ____."
Exhibits - "FDIC Ex. No. ____."2 Jules LeBlanc settled the claims against him and is no longer a party to this action.3 Effective August 9, 1989, amendments to section 19 of the FDI Act added by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub. L. 101-73, 103 Stat. 183 (1989), broadened the scope of the statute to require that persons convicted of offenses involving dishonesty or breach of trust obtain the written consent of the FDIC before participating, directly or indirectly, in any manner in the conduct of the affairs of any insured depository institution. Prior to these amendments, the requirement to obtain prior consent applied only to such convicted persons seeking to serve as a director, officer or employee of an insured depository institution.4 Respondent sought leave to file a Reply to FDIC's Exceptions. Because of its determination herein, the Board need not address Respondent's submission.5 At the July 1989, examination, 28.7 percent of the Bank's loan portfolio was adversely classified. Adversely classified items equalled 436.8 percent of the Bank's total equity capital and reservesa 300 percent increase from the previous examination. Its ratio of capital to Part 325 assets had declined from 6.47 percent in March 1988, to 2.80 percent in July 1989. FDIC Ex. No. 1; Tr. at 185, 197.{{12-31-95 p.A-2732}}of Respondent's companies. Respondent and Jules LeBlanc were invited to the Bank's August 16, 1989, board meeting where Respondent presented an application for a loan and a plan whereby the Bank would fund Respondent's purchase of an insurance company and, in return, the insurance company would purchase $1.7 million of the Bank's classified assets. This would reduce the requirement for charge offs, through removal of the classified assets from the Bank, and would be tantamount to recapitalization of the Bank. Tr. at 119, 122, 402. The proposed plan to lend Respondent's corporation $1.75 million was approved in concept by the board at this time. FDIC Ex. No. 14.
Before implementation of the plan, however, the insurance company targeted for purchase by Respondent was declared insolvent and became unavailable. Because of the Bank's September 30 deadline to remove classified assets, Respondent presented a revised plan at the Bank's September 28, 1989, board meeting, under which three noninsurance companies owned by Respondent would purchase $1.7 million in adversely classified assets in exchange for extensions of credit in the amount of $2.6 million to these companies. Bank management approved the revised plan and also committed to extend $3.6 million in credit to several of Respondent's associates (the "Life America Borrowers") for the purpose of capitalizing a new insurance holding company. It was contemplated that the holding company would purchase an insurance company which would either purchase Respondent's companies' loans to the Bank or pay them off. Tr. at 81. In a series of loans the Bank disbursed $2.6 million to Respondent and approximately $37,000 to each of the four Life America Borrowers. The remainder of the $3.6 million extended to the Life America Borrowers was held on deposit at the Bank pending the purchase of the insurance company. As of September 30, 1989, in the aggregate, the Bank extended $6.2 million to the Respondent's companies and insurance company partners in exchange for the Respondent's purchase of $1.7 million in classified assets from the Bank. R.D. at 37.
Upon discovery of these transactions following a November 1989, Visitation Examination of the Bank,6 the FDIC issued an order pursuant to section 8(c) of the FDI Act, 12 U.S.C. § 1818(c)7, requiring the Bank to reverse the transactions. The deposits representing the proceeds of loans to the Life America Borrowers were used to satisfy the loans. The classified assets were taken back and offset against the loans made for their acquisition. Approximately $635,000 in loan proceeds used by Respondent for nonbusiness purposes have never been repaid. On November 20, 1989, Respondent and Bank board members attended a meeting with the OFI Commissioner to discuss the transactions and the adverse reaction of the FDIC examiners to the transactions. Following the meeting, Respondent wrote the OFI Commissioner detailing the transaction, and wrote to an OFI examiner presenting information Respondent believed would support the appraisals on the collateral for the loans to his companies. Tr. at 57-8; 60-1; FDIC Ex. No. 18. The Bank was closed for insolvency by the OFI Commissioner on December 6, 1989.
The FDIC seeks to impose a Civil Money Penalty ("CMP") of $100,000 against Respondent under section 8(i)(2)(A) of the FDI Act for alleged violation of section 19 of the FDI Act. Section 19 prohibits persons with criminal convictions involving dishonesty or breach of trust from participating, directly or indirectly, in any manner, in the conduct of the affairs of any insured depository institution without obtaining prior consent of the appropriate banking agency. In 1977, Respondent pleaded guilty to 12 misdemeanor counts for misappropriation of bank funds under 18 U.S.C. § 656.8

FDIC ENFORCEMENT COUNSEL'S POSITION

FDIC Enforcement Counsel asserts that Respondent's detailed involvement in the pro-6 As of November 10, 1989, the Bank's total equity capital was $3,861,000 before adjusting for losses. Adversely classified assets equalled 631 percent of the Bank's total equity capital and reserves. The $3.6 million extended to the Life America Borrowers represented over 90 percent of the Bank's total equity capital and reserves. Earnings were negative. Liquidity was critical. The Bank president stated that the Bank had no source for additional capital. FDIC Ex. No. 2 at 1.7 Section 8(c) authorizes the FDIC to issue a temporary cease-and-desist order when a violation or threatened violation of law, rule or regulation or unsafe or unsound practice is likely to cause insolvency or significant dissipation of assets or earnings of an insured depository institution.8 The ALJ notes the parties' dispute over whether Respondent's crimes involved "dishonesty or breach of trust," but does not make a finding on this issue because his determination that Respondent is not an IAP makes it irrelevant.{{12-31-95 p.A-2733}}posing, explaining, modifying and seeking regulatory approval of the plan went beyond the role of a borrower and made him an "IAP", and thus subject to enforcement action under section 8(i)(2) of the FDI Act. They focus on several factors which they consider indicative of a management role and describe as "unprecedented," "unusual" and inconsistent with the role of a borrower. For example, Respondent: (1) attended several Bank board meetings to explain the loan proposal and its revisions; (2) brought in outside borrowers to complete the execution of the revised plan; (3) attended a Bank board meeting after his loans were funded and his companies had purchased the Bank's adversely classified assets. At this meeting strategy was discussed concerning a possible section 8(a) termination of the Bank's deposit insurance and the Bank's response to a grand jury subpoena, the Bank's capital level and other problems at the Bank; (4) attended several meetings with the OFI Commissioner to explain the plan; (5) after a meeting with the OFI Commissioner Respondent followed up with letters to a Commission staff member detailing his plan, supporting the collateral values of the property pledged by his companies and forwarding loan documentation on the Bank's behalf.
FDIC Enforcement Counsel argue that these actions demonstrate the Respondent's authority and controlling influence over the Bank and the uncommonly high level of trust senior Bank officials placed in Respondent's ability to represent the Bank's interests.

RESPONDENT'S POSITION

Respondent contends that he was never an IAP of the Bank and states that he was a businessman who borrowed money and bought classified loans in transactions negotiated at arm's length. He asserts that each of the actions alleged to have made him an IAP was taken at the Bank's request and none is inconsistent with his interests as a borrower.

THE RECOMMENDED DECISION

Following a review of each of Respondent's actions alleged to have transformed him from a borrower or purchaser of assets into an IAP, the ALJ finds that "the decision to make the questioned loans was made by the Bank board; the Bank officials had no basis to believe that Respondent was acting on behalf of the Bank contrary to his own interests either as a borrower or as a purchaser of assets; there is no indication that these officials ever represented to Respondent or to others that Respondent had authority to act for the Bank on any matter; and there is no allegation that Respondent ever represented to the Bank or to others that he was serving the Bank's interest as opposed to his own." R.D. at 22-3. He concludes:

I am unable to find that Respondent was ever in a position of authority or of control over the Bank, or ever held a position of trust, which would have enabled him to make decisions or take action on behalf of the Bank. Independent decisional authority was retained and exercised by the Bank's board of directors. ... R.D. at 2122.

DISCUSSION

[.1] This case turns on whether Respondent is an IAP because without such determination the FDIC cannot impose a CMP against Respondent under section 8(i)(2) of the FDI Act.9 It is uncontested that Respondent is neither an officer, director, employee, shareholder nor independent contractor of the Bank. Thus, the issue is whether his actions fall within the FDIC's broad discretion to determine on a case-by-case basis whether a person is an IAP. 12 U.S.C. § 1813(u)(3).10
The record does not provide a basis for9 FDIC Enforcement counsel stated in an opening statement that "we are not here to determine the quality of the loans that were made. We already know the result of the transaction." Tr. at 9; R.D. at 11. Thus, issues related to the quality of the loans and other aspects of the transactions were not the focus of the proceedings or of the R.D.10 The term "institution-affiliated party" is statutorily defined as:

(1) any director, officer, employee, or controlling stockholder (other than a bank holding company) of, or agent for, an insured depository institution;
(2) any other person who has filed or is required to file a change-in-control notice with the appropriate Federal banking agency...;
(3) any shareholder (other than a bank holding company), consultant, joint venture partner, or any other person as determined by the appropriate Federal banking agency (by regulation or case-by-case) who participates in the conduct of the affairs of an insured depository institution; and

{{12-31-95 p.A-2734}}disagreeing with the ALJ's detailed factual analysis. His conclusions regarding each of the FDIC's allegations are supported by the record.

[.2] The ALJ discussed in detail the four cases in which the Board has construed the term "IAP." R.D. at 610.11 None is factually similar to this case and he concludes that while they provide guidance, none is determinative. R.D. at 22. He analyzed the four cases under the three factor test followed in the Jameson and Stoller cases(1) the nature of the work performed; (2) the ability of the person to cause harm to the institution; and (3) the relationship between the role performed by the person and the institutionas well as the "authority, control or trust" standard urged by Respondent. The ALJ concluded that there is little material difference between the tests advanced by the parties and that under either test Respondent's conduct did not make him an IAP. R.D. at 2224. Moreover, while recognizing Respondent's unusual role in the transactions, the ALJ correctly notes that the FDI Act "does not cover all participants to unusual or even improper, transactions." R.D. at 24.
It is apparent that Respondent exercised great leverage in these transactions, however, that is not inconsistent with the role of a powerful borrower. In light of the fact that the Bank had no alternative means of recapitalizing, FDIC Ex. No. 2 at 1, Respondent's leverage was handed to him by Bank management. The record contains credible evidence that Respondent negotiated the terms of the transaction in his own best interest (and indeed the terms were not very favorable for the Bank).12 Tr. at 7377. Once the plan was agreed to by the Bank, the interests of the Bank and Respondent in obtaining approval of the transaction from the regulators coincided. R.D. at 14. This coincidence of interests is not inconsistent with Respondent's role as a borrower. Moreover, while some of Respondent's actions may have been "unusual" for a borrower, they were all done at the request of the Bank, and none was illegal or contrary to regulation. The ALJ gives credence to the respondent's explanations of his actions which Enforcement Counsel allege are evidence of his controlling influence. The ALJ's findings are plausible and supported by the record. For example, although the FDIC points to Respondent's attendance at several Bank board meetings as indicative of his "management" role, the ALJ points out that after making his presentation at these meetings, Respondent was excused. R.D. at 13; Tr. at 79. He did not participate in the discussions and was not present for the votes.13 Respondent was not present at the board meeting at which the credit extension to his companies was approved.

[.3] Because there is no clear line of demarcation when a borrower's involvement in a loan transaction makes such borrower an institution-affiliated party, the Board must act cautiously when asked to expand the case-by-case definition of this term. The Board notes that the ALJ construed "participation in the conduct of the affairs of an insured depository institution" to be limited to persons who could "make decisions or take action on behalf of the bank." R.D. at 21. This is more limited than the standard previously relied upon by the Board which has included persons "in a position to influence [the institution's] affairs." In the Matter of * * *, supra, FDIC Enf. Dec. P-H ¶ 5082 at A-1000. The Board does not adopt the ALJ's standard. However, even applying the broader standard, the Board does not believe there is enough evidence here to show that Respondent was in a position to materially influence the activities of the Bank such that he could fairly be categorized as an institution-

(A) any violation of any law or regulation;
(B) any breach of fiduciary duty; or
(C) any unsafe or unsound practice, which caused or is likely to cause more than a minimal financial loss to, or a significant adverse affect on, the insured depository institution. 12 U.S.C. § 1813(u).

11Federal Savings and Loan Insurance Corporation v. Hykel, 333 F. Supp. 1308 (E.D. Pa. 1971); In the Matter of * * *, FDIC-85-25e, FDIC-85-112k, FDIC-85-113K [Bound Vol. 1] FDIC Enf. Dec. P-H ¶ 5082 (1987); In the Matter of Frank E. Jameson, FDIC-89-83e, Vol. 1 FDIC Enf. Dec. P-H ¶ 5154 (199); In the Matter of Robert E. Stoller, FDIC-90-115e, Vol. 1 FDIC Enf. Dec. P-H ¶5184 (1992).12 With respect to at least one loan he purchased, Respondent attempted to negotiate a hold harmless agreement with the Bank ensuring a limitation on his losses. Tr. at 96; FDIC Ex. No. 49.13 The ALJ distinguishes this from In the Matter of * * *, supra, where the Respondent controlled the board meetings. R.D. at 13.{{12-31-95 p.A-2735}}affiliated party. The Board concurs in the ALJ's conclusions that the FDIC did not establish substantial evidence to prove that Respondent assumed a responsibility to act on behalf of or in the best interest of the Bank. R.D. at 21.

CONCLUSION

Based upon a review of the record, and the findings of fact and conclusions of law set forth in the R.D., the Board concludes that the Notice of Assessment of Civil Money Penalties against Respondent should be dismissed.

ORDER

The Board of the FDIC, having considered the entire record in this proceeding, hereby ORDERS that the Notice against Roger J. LeBlanc be dismissed.
IT IS FURTHER ORDERED, that copies of the Decision and Order be served upon Respondent, counsel for all parties, the ALJ and the Commissioner of Financial Institutions for the State of Louisiana.
Dated at Washington, D.C., this 11th day of October, 1995.
By direction of the Board of Directors.

__________________________________
RECOMMENDED DECISION

In the Matter of
ROGER J. LEBLANC,individually and as an institution-affiliated party, and/or as aperson participating in theconduct of the affairs of
FIRST BANK, PINEVILLE,LOUISIANAPINEVILLE, LOUISIANA
FDIC-94-17k
(6-7-95)
Arthur L. Shipe, Administrative Law Judge:
This proceeding was instituted on April 12, 1994, by issuance of a Notice of Assessment of Civil Money Penalties (Notice). The Notice alleges that Respondents have violated Section 19 of the Federal Deposit Insurance Act, 12 U.S.C. § 1829, have engaged in or participated in unsafe and unsound banking practices, and have breached fiduciary duties to the First Bank, Pineville, Louisiana.
The Notice assesses a money penalty against Respondent Jules LeBlanc in the amount of $50,000, and a similar penalty against Respondent Roger LeBlanc in the amount of $100,000. Respondent Jules LeBlanc has settled the claims against him, and is no longer a party to this action. Respondent Roger LeBlanc will be referred to hereinafter as the Respondent. Oral hearings were held in this matter on January 10, 11, and 12, 1995 at Baton Rouge, Louisiana. Post-hearing initial and reply briefs have been filed.
Based upon the entire record, including exhibits, witness testimony, the observation of witness demeanor, the following Discussion of Facts and Law, Finding of Fact, Conclusion of Law and Order, are entered.

DISCUSSION OF FACTS AND LAW

Respondent is a businessman, and an attorney, with extensive experience in insurance, real estate and banking. In the late 1980's he was attempting to organize an insurance company that would provide life insurance to persons in recovery from drug or alcohol addiction, a group of people that are generally not insurable by main-line insurance companies. Respondent, based on personal experience, believed that such persons presented insurable risks if placed under appropriate controls. He engaged an actuarial company to conduct a study on the subject, and developed a business plan for the proposed company.
In early 1989, Respondent applied to First Bank, and other banks, for financing of his plan. He was turned down by that Bank, and apparently by the other banks as well.
In the summer of 1989, First Bank was the subject of a joint Louisiana and FDIC examination, which resulted in about $1.7 million in loans being classified as loss or doubtful. This placed the Bank in a precarious capital position. Thereafter, in July or early August, 1989, Respondent was approached by a First Bank official and asked if Respondent were still seeking financing for an insurance company. The proposal was made by the involved bank official that the Bank would loan money to the insurance company if the insurance company would then purchase classified assets of the Bank. (Tr. 6970)
It was recognized by both the Bank and the Respondent that any transaction of this nature and magnitude would be subject to
{{12-31-95 p.A-2736}}scrutiny by the Bank's regulators, the Louisiana Commissioner of Financial Institutions and the FDIC. The strategy adopted for obtaining approval of these regulators was to first obtain the consent of the state officials who, it was hoped, would then bring the FDIC into agreement.
It should be noted that this strategy proved to be misguided; it is clear that when the FDIC officials become aware of the transaction their hostility and suspicion toward it were fueled, at least in part, by not having been informed about the matter before the fact.
After a meeting with state banking authorities, and an examiner investigation, tentative state approval was obtained on condition that any new loans were sound and properly underwritten. The result of the transaction would have substituted the Bank's classified credits for supposedly sound loans.
Implementation of the plan was delayed, when the insurance company, located in Indiana, that had been targeted by Respondent as the vehicle for his intended operation, was declared insolvent and closed by Indiana insurance regulators. Because of the deadline by which the Bank was to write off its classified loans, an alternative plan was devised.
Under that plan loans were made to companies, already owned by Respondent, which in turn purchased the Bank's classified assets. Additional loans were made to business associates of Respondent for the purchase of an insurance company. Those funds were held on deposit at the Bank pending the purchase of an insurance company. It was contemplated that when an insurance company was acquired it would assume the related obligations of Respondent's companies.
Upon discovery of these transactions by the FDIC they were reversed. The deposits representing the proceeds of loans to Respondent's associates for the purchase of an insurance company were seized to satisfy the loans. The classified assets were taken back and offset against the loans made for their acquisition. Approximately $635,000 in loan proceeds were used by Respondent for other purposes, and were not repaid. No suit to recover those proceeds has been instituted by the FDIC receiver appointed to liquidate the Bank in December 1989.
The FDIC seeks in this proceeding to impose a civil money penalty against Respondent under section 8(i)(2)(A) of the Federal Deposit Insurance Act for an alleged violation of section 19 of the Act. The allegations pertaining to unsafe and unsound banking practices, and the breach of fiduciary duties are not specifically pursued.
Section 19, as effective in 1989, prohibited persons with criminal convictions involving dishonesty or breach of trust from participating, directly or indirectly, in any manner, in the conduct of the affairs of any insured depository institution, without obtaining prior agency consent.
In 1977, Respondent pleaded guilty to 12 misdemeanor counts for misappropriation of funds under 18 U.S.C. § 656. The offenses involved writing overdraft checks on accounts at banks in which he was a principal shareholder. The checks were ultimately covered and overdraft fees were assessed, but no interest was paid on the amounts involved for the time the accounts were overdrawn.
Although it is disputed whether these convictions involved "dishonesty or breach of trust" crimes as required for section 19 to apply, it will be assumed for purposes of this decision that they did, and that Respondent would have, therefore, been required, because of the stated convictions, to obtain prior agency consent to participate in the conduct of the affairs of a bank. It must be also shown, however, for section 8(i)(2)(A) to apply, that Respondent was an "institution affiliated party" within the terms of that section.1
FDIC cites four cases where the term affiliated party has been authoritatively construed to support its contention that Respondent was an affiliated party. Federal Savings and Loan Insurance Corporation v. Hykel, 333 F. Supp. 1308 (E.D. Pa. 1971); In the Matter of * * *, FDIC-85-25e, FDIC-85-112k, FDIC-85-113k [Bound Vol. 1] FDIC Enf. Dec. and Order (P.H) ¶5082, A994 (1987); In the Matter of Frank E. Jameson, FDIC-89-83e, Vol. 1 FDIC Enf. Dec. and Orders ¶5154A (1990); In the Matter of Robert E. Stoller, FDIC-90-115e Vol. 1 FDIC Enf. Dec. and Orders (H) ¶5184, A2082 (1992).
The most extensive consideration of this1 It need not be determined whether the more sweeping language of section 19 has a broader meaning than section 8(i)(2)(A) since the penalty requested here is sought under the latter provision. Cf. Stoller at A-2085.{{12-31-95 p.A-2737}}issue by the Board is contained in the ¶5082 case. In that proceeding the involved respondent was a tax consultant hired by another individual to manage the latter's tax affairs. That respondent caused two banks to be purchased by his client for the purpose of creating tax deductions. The respondent located the banks to be purchased, negotiated the purchase transactions, conducted correspondence with the FDIC about the proposed acquisition, filed the Notices of Acquisition and Control, and then installed himself as de facto manager of the banks. He overruled the nominal bank officers on important decisions, ran the directors meeting even when his client, the principal owner of the banks, was present. On one occasion, the respondent expelled two bank officers from a board of directors meeting. For a period of time he was acting president of one of the banks. He had an office in one of the bank buildings, and informed the bank officers that he was to be contacted about all loans that were to be made. The respondent was described as the alter ego of his client, the banks' majority shareholder.
The Board stated that "[t]his is precisely the type of situation we believe the statute was intended to cover with the inclusion of the phrase `other person participating in the conduct of the affairs' of a bank, and that the statute's "language and intent are broad enough to cover persons with no `official' connection to a bank, but with the opportunity, power and ability to abuse it nevertheless." A-1001 and A-1002.
In the Jameson case, the respondent was a former vice president of the involved bank. His office duties had included, among other things, review of loan files to ascertain whether they contained appropriate documentation. Following incidents of falsification of his pay records, he resigned as vice president, but was retained by the bank on the next business day as a "temporary consultant" with the same duties as before, at least as far as those duties pertained to loan files. Stressing the discretionary nature of the work performed by the respondent, and his access to loan and other bank records which afforded an opportunity to falsify or destroy such records, the Board found that respondent was an affiliated person of the institution.
In Stoller, the respondent, an attorney, was prohibited by a Board Order from "participating in any manner in the conduct of the affairs" of an insured institution, because of prior conduct demonstrating a lack of trustworthiness. The issue determined in the cited opinion was whether the order served to bar that respondent from providing legal representation and legal advice to covered financial institutions. Pointing out that an attorney representing a financial institution, like the institution's directors and officers, occupies a position of trust, and has important fiduciary obligations to the institution, and has sufficient influence on a bank's decisions and sufficient opportunity to harm the institution, the Board found that respondent's legal representation and his furnishing of legal advice were prohibited by the interpreted order.
In Hykel, the court construed a prohibition order barring that respondent from "further participation in any manner in the conduct of the affairs" of an insured institution. The issue decided was whether the prohibition order constituted a bar to the respondent's acting as a real estate agent with authority to sell or rent real estate acquired by the institution through foreclosure. Finding that the involved statutory provision conferring agency authority to issue prohibition orders was intended by Congress to prevent persons who have evidenced dishonesty from having any opportunity which offers a potential for a recurrence, and that a real estate agent may make decisions as to specific land parcels to be sold, market price, timeliness of sale, and terms of financing, which would offer the opportunity for a recurrence of dishonest acts, the Court determined that the Respondent was an affiliated person and that the prohibition order barred the respondent from acting as a real estate agent for a bank.
Respondent contends here that to be deemed a participant in the conduct of the affairs of a bank an individual must exercise authority or control over the affairs of, or assume a position of trust in, a financial institution. FDIC claims that this misstates the test to be applied. It argues that the test is "the nature of the work performed, the ability of a respondent to cause harm to an institution and the relationship between the role performed by the respondent and the institution," citing Jameson at A-1541 and 1542.3, and that it is the opportunity to harm an institution that makes one a participant in
{{12-31-95 p.A-2738}}the conduct of its affairs, citing Stoller at A-2085.
It is not believed that there is a material difference in the tests proposed by the respective parties.
Obviously, both tests entail a consideration of the "nature of the work performed." It is difficult to perceive how an individual would have the "ability" or "opportunity" to harm an institution in the absence of some authority or control over, or trust with, some activities of a bank. All of this must be ascertained by viewing the relationship between the role performed by the individual and the institution.
In Hykel, the "discretionary powers" (trust) of the individual over real estate matters of the bank, which would have afforded an opportunity to exercise a demonstrated proclivity to dishonesty was stressed. In ¶5082, the subject respondent exercised virtually complete control over the involved banks. In Jameson, the respondent's "discretion" (trust) over loan and bank records providing an opportunity for abuse was the stated basis for a holding that he was an affiliated person. In Stoller the respondent was an attorney. The Board points out that an attorney "occupies a position of trust and has important fiduciary obligations to the financial institution," and because of this position has a significant opportunity to harm the institution.
FDIC argues that Respondent LeBlanc has acted in the manner of a controlling shareholder who would protect his interest by maintaining the financial viability of his institution. However, FDIC also argues that the loans to Respondent were "bad loans." These arguments are not consistent. Clearly, a principal shareholder would not attempt to safeguard his financial interest by making bad loans with the institution's funds.
Of course, if the loans were sham transactions as the FDIC contends, it may then be argued that Respondent was a strong-hands borrower stripping the Bank of its remaining assets. But such a role is not that of a principal shareholder protecting the institution's viability.
In an opening statement, FDIC counsel stated, "We are not here to determine the quality of the loans that were made. We already know the result of the transaction." Tr. 9.
The result of the transaction is that it was reversed. FDIC stresses that after that reversal the Bank, and the FDIC as its receiver, failed to recover about $635,000, which it claims is still owed by Respondent. No suit has been brought for recovery of that claimed debt, which in view of the amount involved would seem warranted, unless there are legal impediments to obtaining collection. Respondent testified that if he were sued on the alleged debt he would probably counter sue for amounts he claims to have lost as a result of the reversal of the transaction.
In spite of the assertion that the quality of the questioned loans is not in issue, FDIC now argues that the "weight" of the evidence demonstrated that they were bad loans. Criticism is offered of the loan documentation and the appraisals of the underlying collateral. Title examination of the collateral was conducted by a sister of Respondent, who is an attorney.
Respondent defends the loans, claiming that they were well collateralized, and that the appraisals were conducted by competent professional appraisers, and that title insurance was obtained by the Bank on its lien interests.
It is concluded that the record presented here does not afford an adequate basis for responsibly resolving these issues, and that it is unnecessary in view of the above arguments of FDIC.
As a further indication of Respondent's claimed affiliated person status, FDIC stresses Respondent's attendance at Bank board meetings. However, there is no indication that he dominated or controlled those meetings in a manner that caused the related loan decisions to be made without independent consideration by the board.
On August 16, 1989, Respondent attended a board meeting. One loan had already been granted on August 9, 1989; the second one was extended on August 18, 1989. Respondent attended the meeting by special invitation to present his proposed transaction. When his presentation was completed he was excused from the meeting while the board discussed it. (Tr. 79)
The loans which enabled companies controlled by Respondent to purchase the Bank's criticized assets were approved on September 28, 1989. He was not present for the meeting at which this action was taken. Respondent also attended board meetings on October 5, 1989, and November 9, 1989. Again, he was excused from the meetings
{{12-31-95 p.A-2739}}upon completion of his presentation. (Tr. 53, 130, 156, 171, 463; FDIC Ex. 14)
This presents a widely dissimilar situation from that described in the cited ¶5082 case where the person who was found there to be an affiliated person had conducted the board meetings, and on one occasion expelled Bank officers from a meeting.
On November 20, 1989, Respondent attended a meeting along with Bank board members at the state banking commissioner's office. All aspects of the Bank's situation were discussed at that meeting including the adverse reaction of the FDIC examiners to the transaction. FDIC takes strong exception to contacts by Respondent with state banking officials, but accuses him of bad faith in not contacting the FDIC about the matter. At the time of this meeting Respondent's interest in saving the transaction was congruent with the Bank's, but it is not apparent how discussion of the matter with public officials was improper or transformed him into an agent of the Bank.
The FDIC points out that the loans purchased by Respondent's companies from the Bank were bought at book value, though they were classified, and claimed by the FDIC to be virtually worthless. On the face of it this aspect of the transaction was highly favorable to the Bank. The FDIC is not persuaded. It contends that this merely demonstrates the dubious nature of the entire transaction.
Respondent performed a due diligence examination of the loans, and offers a different and plausible assessment of their value. The likely explanation for the purchase of the loans at book value is that it was very much in the Bank's interest that it be done, that Respondent was willing to assume some risk of loss on the loans in order to obtain the credit he sought, and that the Bank was willing to extend the credit if its interests were accommodated. In the eyes of the FDIC counsel this arrangement transformed Respondent into an affiliated person of the Bank.
The FDIC lists 17 specific activities, which it contends, evidences Mr. LeBlanc's participation in the conduct of First Bank's affairs. Though some are related to matters previously discussed these will be reviewed seriatim.
1. Discussing the Bank's capital and loan problems with Bank officials.
This is not disputed. However, these discussions occurred after Respondent was approached by the Bank officials with those problems. Without this initiative from the Bank, Respondent would not have been aware of the problems. He was approached because he had earlier applied for a loan, which was denied.
2. Proposing to purchase the Bank's adversely classified assets in return for a loan to purchase an insurance company. The Respondent's insurance company would effectively recapitalize the Bank.
This suggests that initiative for this transaction came from Respondent. The evidence, however, is that Respondent was first approached by the Bank officials with the proposal.
3. Attending a meeting with the OFI Commissioner to seek approval for his plan, prior to presenting the plan to the Bank's board of directors.
This seems to be incorrect. (Tr. 129; Resp. Reply Brief at 14)
4. Presenting his deal to recapitalize the Bank by having the Bank loan him the funds for the purchase of an insurance company, and in exchange, his insurance company would purchase the Bank's adversely classified assets.
This is largely a repetition of number 2 above.
5. Working with his brother, Bank special counsel Jules LeBlanc, to provide insurance and banking expertise to help resolve the Bank's capital problem.
It is of importance that Respondent's brother was hired as a special counsel to the Bank on the subject transactions. It is of equal importance that Respondent was not so hired. It is evident that the Bank had no interest in Respondent's insurance and banking expertise apart from his status as a borrower and purchaser of bank assets. Although the FDIC strives to show otherwise, the Bank did not seek Respondent's advice except as it related to specific transactions to which he was a party.
6. Portraying his insurance company loan/ Bank asset purchase as a package deal, and as one that would keep the bank open and thriving.
The Proposed Findings of Fact relied upon for this assertion do not support the statement that Respondent portrayed the deal
{{12-31-95 p.A-2740}}as one that would keep the bank open and thriving. This statement was made by a former director. Tr. 167-168. Proposed Finding of Fact 55 states that "the reason the Bank worked so hard to get the loan transactions completed was to keep the Bank open and that the Bank's motivation in engaging in transactions with the Respondent and his companies was to improve the Bank's capital position." In whatever form Respondent may have portrayed the matter, that portrayal assumed his role as a potential borrower and purchaser of assets.
7. Unilaterally changing the terms of the deal to fit his requirements due to his inability to purchase an insurance company within the required time frame. The new terms required the Bank to extend $2.6 million to the Respondent's companies for the companies' purchase of the $1.7 million in classified assets and required the Bank to fund a $3.6 million insurance company loan prior to the Respondent's companies' purchase of the assets.
There is no evidence that Respondent unilaterally changed the terms of the deal to fit his requirements. The described transactions were re-arranged because of the Bank's need to remove the classified assets from its books by September 30, 1989, not because of the timing of Respondent's credit needs. It is not believed that he would have sought to borrow funds before he had an opportunity to make use of them.
8. Obtaining $2.6 million in credit from the Bank prior to the Bank's receipt of all the normal underwriting information needed to evaluate the credit.
The notion that the failure of a bank to timely receive normal underwriting information from a borrower transmutes the borrower into an affiliated person of the Bank is not to be accepted, even assuming that occurred here. The proposition assumes, rather than validates, the conclusion sought to be reached, namely that Respondent was an affiliated person of the Bank, and therefore responsible for its conduct.
Obtaining $2.6 million and $3.6 million, for his companies and Life America partners, respectively, without the board even inquiring as to the Bank senior loan officer's opinion of the credits and his concerns about them.
It is not clear that the described procedure violated bank policy. Assuming that it did, the consequences for Respondent would not be different than stated in the presiding statement.
10. Persuading the board of directors to authorize a credit facility for the purchase of a (specific) insurance company or any other insurance company; the credit to be extended to certain (named) individuals or others one day prior to the end of the call report period.
As this statement implies, it was not Respondent's powers of persuasion that caused these loan authorizations to occur one day prior to the end of the call report period; it was the Bank's need to remove the classified credits from its books before issuance of the call report.
11. Persuading the board to change the structure of the insurance company loan by representing a new insurance company concept with new borrowers.
As discussed, the change was precipitated, in part, if not entirely by the Bank's needs. See also No. 13 below.
12. Conveying an indemnification agreement to the Bank's holding company requiring the holding company to indemnify the Respondent's companies for any loss from the adversely classified assets purchased which exceeded $250,000.
The critical term here is "conveying." The subject document represents an effort by Respondent to obtain a stronger position in the deal. According to him, the proposal was not agreed to by the holding company, and there is no showing to the contrary. The incident refutes the FDIC contention that Respondent was dictating all terms of the disputed arrangement to the Bank.
13. Persuading the board to accept new borrowers (for the insurance company loan), prior to the identification of the insurance company to be purchased and without presenting the insurance company's projected earnings.
In my opinion the new borrowers strengthened the loan for the insurance company. Nor did their introduction to the bank by Respondent alter his role there. As stated, the reason for the advanced timing of the loans was caused by the Bank's needs. The agreements further provided for prior approval by the Bank of any insurance company proposed to be purchased. Thus, the Bank was not obligated to consummate the transaction irrespective of the identity of any
{{12-31-95 p.A-2741}}company to be acquired. The earnings of a specific company could not be projected. However, according to Respondent's unrefuted testimony, he had developed an extensive business plan, including actuarial studies, designed to demonstrate the feasibility of his proposed venture.
14. Attending a November 1989, Bank board meeting with Bank counsel, Geoffrey Vitt, at which they discussed: possible adverse FDIC administrative actions, including the termination of the Bank's deposit insurance proceedings pursuant to section 8(a) of the FDIC Act; the Bank's problems including its capital level, and the Bank's response to a grand jury subpoena.
Respodent attended a board meeting held on November 9, 1989, at which the subjects listed were discussed, though it is not clear which ones were discussed in his presence. (Tr. 53) The Respondent, upon invitation, attended other meetings of the Bank board for the purpose of discussing the disputed transactions. FDIC seems to take grave exception to any loan applicant meeting with a bank's board of directors, but no written authority prohibiting or criticizing such meetings has been presented, and no rationale for such a prohibition has been offered.
15. Consulting with Bank counsel, Geoffrey Vitt, as to regulatory concerns with the deal between the Respondent and the Bank.
The proposed Finding of Fact set forth to support this assertion states that Mr. Vitt contacted Respondent to inform him of problems with the transaction and to find out if the loans could be shored up. Not included in this proposed Finding of Fact, however, is the further statement of Mr. Vitt that it quickly developed that the FDIC officials were not concerned with the substance of the transaction. Their concern was based on the identity of the borrower, Respondent. It is not explained how these discussions transformed Respondent from a borrower of funds and a purchaser of assets to an affiliated person.
16. Participating in a Bank meeting with the OFI Commissioner in November 1989 to explain the deal between himself and the Bank; FDIC regulatory concerns about the credits were discussed, as well as the Commissioner's ability to prevent the termination of the Bank's deposit insurance.
and
17. Communicating directly with the OFI Commissioner and an examiner to explain his deal with the Bank in detail and to support the value of the property collateralizing his portion of the deal, as follow up on his and the Bank board's meeting with the OFI Commissioner.
As stated, the Bank officials as well as Respondent, recognized that in order for the considered transactions to be carried out they would have to receive regulatory approval. The Bank hired Respondent's brother Jules LeBlanc for the purpose of gaining his assistance in obtaining that approval. It is not disputed that all of the interested parties worked to that end. There is no indication that Respondent ever concealed his interest in the matter. It was necessary for his interest to obtain the consent of all banking officials. There is no indication that the public officials to whom the overtures were made ever indicated that they were improper, or could be made only by a bank official.
Curiously, as previously discussed, while the Respondent is deemed to have become an affiliated person, at least in part, because of these allegedly improper contacts with state banking officials, he is simultaneously accused of bad faith for his failure to contact FDIC officials about the matter. Thus, it is unclear whether FDIC considers it proper or improper for a bank customer to discuss his banking transactions with regulators.
In summary, upon review of the factual circumstances presented, and the controlling authorities cited above, I am unable to find that Respondent was ever in a position of authority or of control over the Bank, or even held a position of trust, which would have enabled him to make decisions or take action on behalf of the Bank. Independent decisional authority was retained and exercised by the Bank's board of directors with respect to the matters involving Respondent.
Applying the test proposed by the FDIC, namely, "the nature of the work performed, the ability of a respondent to cause harm to an institution, and the relationship between the role performed by the respondent and the institution," does not yield a different result.
The cited cases refer to quite specific work performed by the involved respondents, including management of Banks, reviewing Bank loan files, representing Banks
{{12-31-95 p.A-2742}}as their attorney, and servicing as a Bank's real estate agent. Respondent performed no role comparable to those here. His alleged "work" consisted of persuading the Bank board and state regulators of the viability of the proposed transaction, a role entirely consistent with that of a bank borrower, or a purchaser of bank assets. Similarly, any ability that Respondents had to harm the institution consisted of borrowing money and not paying it back, clearly a borrower's role, that could only be effected after Bank approval of the transaction.
The decision to make the questioned loans was made by the Bank board. The apparent relationship between the role performed by the respondent and the institution was that of borrower and purchaser of assets. The claim that these roles, when combined, become that of an affiliated person is not accepted. Plainly, the Bank officials had no basis to believe that Respondent was acting on behalf of the Bank contrary to his own interests, either as a borrower or as a purchaser of assets. There is no indication that these officials ever represented to Respondent or to others that Respondent had authority to act for the Bank on any matter. There is no allegation that Respondent ever represented to the Bank or to others that he was serving the Bank's interest as opposed to his own.
FDIC's position would seemingly impose upon Respondent a role that was contrary to his understanding as well as to the perception of those he is alleged to have been serving.
The FDIC counsel argue that the testimony of the Bank directors, called by the FDIC as hostile witnesses, stating that they never supposed that Respondent was acting on behalf of the Bank, is not to be believed because the directors have a clear financial or professional stake in that position. They have been sued for breach of duty to the Bank with regard to the transaction in issue here. However, the described self-interest of the witnesses does not refute their testimony. The discussion by the Respondent with bank officials and regulators stressed by FDIC in refutation are entirely consistent with his interests as a borrower.
FDIC relies on a note (FDIC Ex. 146, p. 10) taken by one of the bank directors at a meeting on November 20, 1989, that seems to ascribe to the state Banking Commissioner the remark that the loan was "not a hands off transaction." Since the Commissioner was not called as a witness, his meaning is not further explained. However, in an affidavit, undated but obviously written after the November 20 meeting, the Commissioner stated in reference to that meeting and the considered transaction, "I told the Bank's representatives that I saw nothing conceptually wrong with the transaction, but that the Bank would have to make sure that the loans were carefully documented and that the Bank followed strict underwriting procedures." RL 16, p. 3. Thus, any inference that his apparent comment about the transaction not being hands-off reflected a belief that the transaction was tainted by a transposition of roles among the participants seems unwarranted.
The FDIC has pointed to each unusual fact about this unusual transaction as proof that Respondent was more than a borrower and a purchaser of funds. However, the Act does not cover all participants to unusual, or even improper, transactions. As noted, whether the proposed transaction was sound or unsound is not the issue presented here for decision.
I conclude that Respondent has not been shown to have been an affiliated person of First Bank.

FINDINGS OF FACT

1. The Respondent, Roger J. LeBlanc is a businessman and an attorney in Baton Rouge, Louisiana, with extensive experience in insurance, real estate, and banking. (Tr. 28; FDIC-95; Answer p. 2)
2. In early 1989, the Respondent applied to the First Bank Pineville (Bank), as well as to other financial institutions, for credit to start a de novo insurance company or acquire an existing insurance company. Prior to that time he had had no dealings with the Bank. The Respondent's loan request was denied. (Tr. 6869)
3. In July 1977, Respondent pleaded guilty to twelve misdemeanor charges under 18 U.S.C. §656. The conduct to which Respondent pled guilty involved 12 instances where he wrote overdrafts on a checking account at a bank in which he was a controlling shareholder. Respondent covered the checks in full shortly after they were drawn and paid the normal charges for the overdrafts, but did not pay interest for the funds during the period the accounts were overdrawn. (Tr. 6567, 99100; FDIC-28){{12-31-95 p.A-2743}}
4. The Bank was a corporation existing and doing business under the laws of the State of Louisiana, during the events in issue here. Its principal place of business was in Pineville, Louisiana. (FDIC-1; FDIC-3, FDIC-4)
5. At all times pertinent hereto, the Bank was a state nonmember bank insured by the FDIC. (FDIC-4)
6. The Bank was closed by the Commissioner of Louisiana Office of Financial Institutions ("OFI") in early December 1989, following the issuance by the FDIC of a temporary order suspending the Bank's deposit insurance and a notice of intention to terminate such insurance.
7. In July 1989, the FDIC and the Louisiana Office of Financial Institutions (OFI) conducted a joint examination of the Bank. (Tr. 184; FDIC-1)
8. At the July 1989 examination 28.7 percent of the Bank's loan portfolio was adversely classified. Adversely classified items equalled 436.8 percent of the Bank's total equity capital and reserves a 300 percent increase from the previous examination of the Bank. The bank's ratio of capital to Part 325 assets ratio had declined from 6.47 percent in March 1988 to 2.80 percent in July 1989. The Bank had various asset concentrations equalling 338.9 percent of its total equity capital and reserves. (Tr. 185, 187; FDIC-1)
9. In late July or early August of 1989, the Respondent was approached by Robert B. Tudor, Chairman of the Bank's Board, who described the Bank's capital and loan problems and inquired as to whether the Respondent was still looking for financing for his insurance company. (Tr. 6970; Answer p. 2)
10. In inquiring about Respondent's financing for an insurance company, the offer made to the Respondent by Bank Chairman Tudor and President Marzullo was: "if First Bank would loan the Respondent the money to acquire this insurance company, would the insurance company then help out First Bank?" (Tr. 70, 81, Answer p. 2)
11. On August 7, 1989, the Bank's board of directors hired Respondent's brother, Jules LeBlanc, to act as special counsel and provide consulting information as to how to alleviate the Bank's problem assets and capital depletion and to seek approval from the Louisiana OFI for the considered transactions. (Tr. 28, 29, 125, 149, 151, 189, 193, 197; FDIC-14)
12. Jules LeBlanc was also the attorney for certain of Respondent's corporations, including, S.L.E., New Life Corporation, and Phoenix Financial Group, Ltd. (Tr. 29)
13. On August 9, 1989, the Bank's board of directors met with federal and state banking regulators at the OFI Office in Baton Rouge, Louisiana to discuss the results of the July 1989 joint FDIC-OFI Bank examination, the Bank's capital, and its direction. Mr. David Larry Bowen, a senior examination specialist in the FDIC Memphis regional office, attended the meeting, and was a witness herein. (Tr. 146; FDIC-14)
14. At the Bank's August 1989 board meeting with FDIC and OFI, the Bank's board of directors passed a resolution that required the Bank to either write-off, shore up or pay out the $1.7 million in assets classified loss and doubtful during the joint FDIC-OFI bank examination in July 1989. The board resolution required the Bank to remove this $1.7 million from the Bank's asset portfolio as of the Bank's filing its September 30, 1989, call report. (Tr. 116, 146, 147, 385, 400; FDIC-14)
15. At the Bank's August 1989 board meeting with OFI and the FDIC, the Bank's board passed a resolution to recapitalize the Bank by November 1, 1989. (Tr. 147, 385)
16. On or about August 9, 1989, the Bank loaned approximately $175,000 to S.L.E., Inc., one of Respondent's companies. And on or about August 18, 1989, the Bank extended a similar amount to S.L.E., Inc. The applications stated that the purpose of the loans was for working capital and debt refinancing. Respondent as president of S.L.E., Inc., used a portion of the loans to pay off personal debts. A portion of these funds were used to pay off a debt to Sandy LeBlanc, Respondent's wife, who had extended funds to Respondent in the preparation of the business plan to purchase an insurance company. Another $70,000 was used to pay off a mortgage on one of the properties pledged as collateral for the loanthereby improving the Bank's position in the collateral. (Tr. 8990; FDIC-34, 35, 36, 37, 38 and 39)
17. The collateral pledged for the August 9, 1989, and August 18, 1989, extensions of credit to S.L.E. was a $350,000 collateral pledge of a fractional interest in mineral in-
{{12-31-95 p.A-2744}}terests in the Port Hudson oil fields. (Tr. 202, 205; FDIC-37, FDIC-38, FDIC-39, FDIC-41)
18. The proceeds from the two $175,000 extensions of credit to S.L.E. in August 1989 were paid into S.L.E.'s demand deposit account at the Bank and then transferred to an S.L.E. account at City National Bank in Baton Rouge, Louisiana. (Tr. 32, 216; FDIC-151, FDIC-156, FDIC-157)
19. The Respondent and Jules LeBlanc were invited by the Bank's board of directors to attend its August 16, 1989, meeting because the proposed transactions were complex, and the board sought to be informed by the LeBlancs in the matter. (Tr. 119, 125, 149, 167, 168; FDIC-14)
20. At the Bank's August 16, 1989, Bank board meeting with the Respondent and Jules LeBlanc, the Respondent was presented as someone who had knowledge, experience, and expertise in the insurance industry, and Jules LeBlanc was presented as someone who had expertise on bank boards and in helping banks through regulatory problems. (Tr. 119, 402, 414; Answer p. 2)
21. The Respondent presented the plan whereby the Bank would fund the Respondent's purchase of an insurance company which would in turn purchase the Bank's classified assets. As presented, this would reduce the requirement for charge-downs, through removal of the classified assets from the Bank, and have the same end result as recapitalization of the Bank. (Tr. 70, 74, 119, 401, 402, 414; Answer p. 2)
22. The Bank's board thought the plan with the Respondent, as detailed by the Respondent at the August 16, 1989, board meeting, was a good one, and would keep the Bank open and thriving. The restoration of the Bank's capital was an essential part of the Bank's overall deal with the Respondent. Without the removal of the Bank's classified assets, and the resulting improvement of capital, the transaction extending credit to the Respondent and his companies would not have served the Bank's purpose. The Bank preliminarily approved a loan to a LeBlanc corporation for $1,750,000, under the considered plan, pending further documentation. (Tr. 77, 128, 163, 405, 412; FDIC-14)
23. The Louisiana State Banking Commissioner, Fred Dent, knew before August 9, 1989, of the concept of the Bank financing the purchase of an insurance company, which in turn would purchase some of the Bank's classified assets. (Tr. 11718)
24. On August 23, 1989, Wayne Denley, First Bank's executive vice president, met with John Schindler, a senior bank examiner with OFI. At this meeting, Denley reviewed the considered transactions in detail. Based on this meeting, and subsequent communications, Mr. Denley believed that OFI approved the transaction. (Tr. 146, 416, 424-25)
25. The State Banking Commissioner informed the Bank's officials that he saw nothing conceptually wrong with the transactions. He never advised the Bank that it should not engage in the transactions. He informed the Bank that the loans should be carefully documented and follow strict underwriting procedures. RL Ex. 10.
26. Sometime in August or September 1989, the timing and details of the transactions changed. The original insurance company that Respondent wanted to purchase was no longer available, having become insolvent. The Bank was under the September 30, 1989 deadline imposed by the resolution passed in August. At the request of Bank officials, Respondent agreed to modify the transactions. Under the revised concept, the Bank would extend loans to Respondent's companies and his associates. The proceeds would be used to purchase classified assets from the Bank.
27. In order to forestall his receiving only the negative part of the transaction without the corresponding insurance company loans, the Respondent agreed that his companies would purchase the Bank's adversely classified loans if the Bank funded the $3.6 million loan for the purchase of an insurance company, prior to the Respondent's companies' purchase of the Bank's adversely classified loans. The Respondent proposed that the funds be retained in a deposit account at the Bank until he identified the target insurance company to purchase. (Tr. 7881)
28. On September 28, 1989, the Bank's board of directors met, discussed, and approved in concept, a document entitled Credit Facility, which addressed the Bank's difficulty in raising capital and the board's consideration of alternative methods to raise capital. The LeBlancs did not attend this meeting. In particular, the document would authorize a $6.5 million extension of credit to purchase Life Insurance Corporation. However, the Credit Facility could also be applied to
{{12-31-95 p.A-2745}}another life insurance company acquisition. As fully detailed in the Credit Facility document, $3,000,000 in loans were to be secured by stock and debentures. Borrowers were named, but the Credit Facility allowed for "other qualified borrowers in various amounts." The remaining $3.5 million would be secured by certificates of deposit which would be replaced by mortgages pledged as collateral (including the $1.7 million in assets to be purchased by the Respondent's companies on September 29, 1989). (Tr. 261-264; FDIC-14)
29. The Credit Facility stated that in considering the loans to the Respondent's insurance company, providing the Bank liquidity is of prime importance, and the obvious benefit to the Bank in making the loan is a financial arrangement that is not currently available, not ever having been available, to assist the Bank in troubled areas. (Tr. 261264; FDIC-14)
30. The Respondent relied on the Bank's representation that, although adversely classified, the loans he purchased were good loans. However, in an effort to protect himself from loss due to the purchased loans' uncollectibility, Respondent proposed that S.L.E., Phoenix Financial Group, and New Life Corporation be indemnified by the Bank's holding company for any loss or uncollectability in excess of $250,000. The proposal was not accepted by the Bank. (Tr. 4748, 70, 7273, 95; FDIC-49)
31. On September 29, 1989, the Bank extended credit in the amount of $350,000 to S.L.E., and the Respondent signed the promissory note as president of S.L.E. The collateral for the $350,000 extended S.L.E. on September 29, 1989, was the same collateral as that pledged to S.L.E.'s August 1989 extensions of credit. These three loans were cross-collateralized by fractional oil and gas mineral rights and a fractional interest in 60 acres of land in East Baton Rouge Parish. (Tr. 213215; FDIC-40, FDIC-41, FDIC-42, FDIC-43, FDIC-44, FDIC-45)
32. The documentation supporting the credit extended S.L.E. on September 29, 1989 has been criticized by the FDIC examiners. (Tr. 218220; FDIC-2, p. 2-a-4, FDIC-3 p. 2-a-33, FDIC-51, FDIC-52, FDIC-54, FDIC-55, FDIC-56, FDIC-57, FDIC-59, FDIC-60, FDIC-102)
33. On or about September 29, 1989, the Bank also approved a line of credit in the approximate amount of $1,000,000 to New Life Corporation. Tr. 252; FDIC-83a
34. On or about September 29, 1989, the Bank approved an extension of credit to Phoenix Financial Group in the amount of $1,000,000. (Tr. 258; FDIC Ex. 63) The Bank extended an additional credit of approximately $65,000 to Phoenix Financial Group on or about October 31, 1989. (Tr. 228)
35. On or about September 29, 1989, the Bank approved extensions of credit in the amount of $1,200,000 each to Messrs. Mario Arminini, Charles Bundy, and Stanton Todd, III. The proceeds were to be used to purchase a yet-to-be-identified insurance company. Although all the funds were disbursed, all but $150,000 was maintained in accounts at the Bank and could not be withdrawn without the prior approval by the Bank of the insurance company to be acquired. (Tr. 82, 274, 338; FDIC-14)
36. The Respondent executed a $1 million note on behalf of New Life Corporation. The Bank advanced New Life Corporation approximately $818,654 of the $1 million in credit it had extended New Life Corporation, the entire proceeds of which were used to purchase loans that had been previously classified as doubtful or loss. The assets that were removed from the Bank's books were replaced with the indebtedness of New Life Corporation. (Tr. 36, 252253; FDIC-2, p. 2-a-14, FDIC-3, p. 2-a-32, FDIC-97; Answer p. 3, ¶ 18)
37. The collateral for the $1 million in credit extended New Life Corporation was an 18 percent undivided interest in 1,330 acres of land in East Baton Rouge Parish and the Respondent's $400,000 personal guaranty. (Tr. 29, 36, 253; FDIC-81, FDIC-82, FDIC-97)
38. As of September 29, 1989, the Respondent owned stock in Phoenix Financial Group which he valued at $350,000. The Respondent, as president of Phoenix Financial Group, executed at $1 million demand note in favor of the Bank. On September 29, 1989, the Bank advanced Phoenix Financial Group $826,393 in credit; $600,000 was used to offset, at face value, Bank assets that had been previously classified loss or doubtful. Funds in the amount of $230,000 were extended Phoenix Financial Group, itself. A portion of the $230,000 payable to Phoenix Financial Group was used to pay off a loan of one of the Bank's directors; $55,325
{{12-31-95 p.A-2746}}was disbursed to Empire Land Company for the purchase of a mineral account of Phoenix Financial; $76,180 was payable to Mario Arminini; and $52,500 was transferred to the S.L.E. account at City National Bank in Baton Rouge, Louisiana. Of the funds transferred to S.L.E.'s City National Bank account, $3,057 was made payable to Steamboat Springs Premier Properties for the purpose of the Respondent. (Tr. 35, 225-226, 229-233; FDIC-9, FDIC-63, FDIC-95)
39. The collateral securing the September 29, 1989, $1 million loan to Phoenix Financial Group was a 20 percent interest in 310 acres in East Baton Rouge Parish, $300,000 personal guaranty of the Respondent, and a collateral pledge of a 35 percent interest in 136.2 acres of land. (Tr. 226227; FDIC-63; FDIC-64, FDIC-65, FDIC-66, FDIC-68)
40. Of the $350,000 extended by the Bank to S.L.E. on September 29, 1989, only $319,137 was booked; the remaining $30,862 was never drawn upon and therefore never funded. Of the $319,000 in credit to S.L.E. that was booked by the Bank as having been paid out, approximately $240,000 was used to offset assets that has been previously classified loss or doubtful at the July 1989 examination. These assets were removed from the Bank's books at face value and replaced by proceeds from the extension of credit to S.L.E. The remaining $80,000 was removed from the Bank in cash proceeds which were paid into S.L.E.'s demand deposit account at the Bank and then transferred to S.L.E.'s account number 71371-6 at City National Bank in Baton Rouge, Louisiana. (Tr. 214215, 232; FDIC-2, pp. 2-a-4, 2-a-5, FDIC-58, FDIC-151)
41. As of September 30, 1989, the Respondent's companies had purchased $1.7 million in adversely classified loans from the Bank in exchange for loans to those companies in the amount of $2.6 million and the Bank's commitment to fund a $3.6 million loan for Respondents purchase of an insurance company. In the aggregate, the Bank extended $6.2 million to the Respondent's companies and insurance company partners in exchange for the Respondent's purchase of $1.7 million in adversely classified Bank assets. (Tr. 81)
42. The October 1989 disbursements from the S.L.E. account at City National Bank in Baton Rouge, Louisiana, included: $457,400 disbursed to Morgan Keegan, much of it in the name of Sandra LeBlanc; $50,000 payable to Jules LeBlanc; $13,000 payable to Roger J. LeBlanc; $10,000 payable to S.L.E. Corporation; $46,064 payable to Sandra LeBlanc; and a note payment of $24,880 payable to City National Bank, Baton Rouge, Louisiana. (Tr. 231233; FDIC-58)
43. The loans to S.L.E., Phoenix Financial, and New Life were not typical of the Bank's commercial loans and were larger than the loans the Bank normally made. (Tr. 406)
44. The Bank's senior loan officer, Wayne Denley, testified that the Bank did not make loans to insurance companies because it did not have expertise in making loans to insurance companies. (Tr. 406)
45. The Bank's senior loan officer, Wayne Denley, testified that it was not Bank policy to approve a loan prior to receiving the underwriting information and the loan's supporting proposed transactions, or at least to their concept, prior to receiving the information necessary to evaluate the value of the collateral real estate pledged to the S.L.E., Phoenix Financial and New Life Corporation loans. (Tr. 406, 408)
46. Generally, the Bank's board of directors asked Wayne Denley, the Bank's senior loan officer, his opinion prior to making large commercial loans. Wayne Denley did not recommend that the board approve the extensions of credit to the Respondent's companies or partners because the Bank did not have enough information. At the time the credit was extended, Mr. Denley had questions and concerns about the loan transactions themselves. (Tr. 405, 411)
47. At the October 5, 1989, board meeting, the Bank's board of directors reapproved the $1,200,000 extensions of credit to the three individuals: Stanton Todd, III, Mario Arminini, and Charles Bundy. Collectively, these borrowers, along with Randall A. Gomez, who was subsequently added to the group, were referred to as the "Life America" borrowers. (Tr. 257, 170; FDIC-14)
48. On October 16, 1989, the Bank extended Mario Arminini, Sr., Randal A. Gomez, Charles E. Bundy and Stanton Todd, III, $900,000 each for a total of $3,600,000 in credit. (Tr. 266, 268; FDIC-115a, FDIC-116a, FDIC-117a, FDIC-118a)
49. The proceeds of the loans to Messrs. Todd, Arminini, Bundy, and Gomez were to be used to capitalize a newly-chartered cor-
{{12-31-95 p.A-2747}}poration, Life America Corporation, which would be used as an insurance company holding company to acquire an insurance company or companies. The insurance company or companies to be acquired by Life America would, in turn, purchase the loans that had been previously extended the Respondents companies; S.L.E., Phoenix Financial Group, and New Life Corporation or the underlying collateral and assets the loans to Respondent's companies had purchased from the Bank. At the time the credits were extended to the Life America borrowers, Life America did not know what insurance company it would purchase. (Tr. 267, 338, 389, 407, 426; FDIC-2, p. 2-a-5)
50. Each of the four Life America borrowers pledged the same collateral for the $900,000 in credit extended them: 1,000 shares of Life America Corporation. (Tr. 268, 388; FDIC-2, p. 2-a-4, 2-a-5, FDIC-113, FDIC-115, FDIC-116, FDIC-117, FDIC-118)
51. Life America Corporation was incorporated in the state of Delaware on September 29, 1989. (Tr. 268; FDIC-110)
52. The $65,025 extended Phoenix Financial Group on October 31, 1989, was deposited in the S.L.E. account at the Bank and transferred to the S.L.E. account at City National Bank, Baton Rouge where the funds were expended by the Respondent for his own personal use and benefit. (Tr. 230233)
53. On October 16, 1989, the $3.6 million aggregate credit to the four Life America borrowers had been funded, and the money had been put in an account at the Bank, the remaining $150,000 was removed from the Bank. (Tr. 425426; FDIC-2, p. 2-a-5)
54. On November 9, 1989, the Bank held a specially called board meeting. In attendance were the Bank's board of directors; Geoffrey Vitt, the Bank's regulatory attorney; the Respondent; and Jules LeBlanc. The meeting was a strategy session in which the board discussed the possibility of an 8(a) termination of insurance proceeding; other problems of the bank, including its capital level; and the Bank's response to a grand jury subpoena. The Respondent made a presentation concerning the status of the insurance company Life American was to purchase. (Tr. 52, 158159, 461462, 464, 475476; FDIC-146)
55. Among the things Bank counsel Geoffrey Vitt counseled his clients about during the November 9, 1989, meeting, was that if the Bank's board of directors could convince the OFI Commissioner of the advisability of the Bank's plan with the Respondent, the OFI Commissioner could get the FDIC to go along. (Tr. 160, 474476, FDIC-146)
56. Bank counsel Geoffrey Vitt contacted the Respondent on several occasions to state that the transaction had some real problems and to find out if additional collateral was available or other borrowers could be brought in to the transaction and to ask if there were some way to shore up the loan or make it a better loan. However, he quickly discovered that there was no level of information that would satisfy the FDIC officials; their objections to the loans had very little to do with deficiencies or perceived deficiencies of the loans. Any loan involving Respondent was not acceptable to them. (Tr. 466467)
57. As of November 10, 1989, the FDIC conducted a visitation of the Bank. (Tr. 268; FDIC-2)
58. As of November 10, 1989, the Bank's total equity capital was $3,861,000 before adjusting for losses. (Tr. 269; FDIC-2, p. 3)
59. The findings of the November 10, 1989, FDIC visitation concluded that adjusted capital and reserves were negative prior to subtracting one half of the assets classified doubtful. Adversely classified assets equalled 631% of the Bank's total equity capital and reserves. Earnings were negative. Liquidity was critical. The Bank president stated that the Bank had no source for additional capital. (FDIC-2, p. 1)
60. As of November 10, 1989, the $3,600,000 in aggregate credit extended the Life America principals represented over 90% of the Bank's total equity capital and reserves. (Tr. 269; FDIC-2)
61. As of November 10, 1989, only $150,000 of the $3.6 million in aggregate credit extended the Life America borrowers had been removed from the Bank; the balance of the proceeds from the credit extended was still on deposit at the Bank. (Tr. 270, 274; FDIC-2, p. 2-a-5, FDIC-3, p. 2-a-32)
62. Given the Bank's capital as of November 10, 1989, the Bank would have to insure that it had sufficient liquidity before it could fund the $3.6 million in credit it
{{12-31-95 p.A-2748}}extended the four Life America borrowers. (Tr. 386; FDIC-2, p. 3)
63. As of November 10, 1989, of the aggregate credit extended the Respondent's S.L.E., New Life, and Phoenix Financial Group, $635,000 had been removed from the Bank. (Tr. 271)
64. Based upon the findings of an FDIC visitation as of November 10, 1989, the FDIC issued an emergency 8(c), which, inter alia, required the Bank to reverse the proceeds of the loans which had been extended to Messrs. Todd, Bundy, Arminini, and Gomez in October 1989. (Tr. 269270)
65. On November 20, 1989, members of the Bank's board of directors and the Respondent attended a meeting with the OFI Commissioner. The meeting was held to review FDIC exceptions to the Bank's transactions with the Respondent and to discuss what the Commissioner could do to prevent the Bank's deposit insurance from being terminated. (Tr. 138; FDIC-146)
66. The Respondent attended the Bank's board of directors meeting with the OFI Commissioner to assist in explaining the loan arrangements between the Bank and the Respondent at the request of Bank President Marzullo and Chairman of the Board Tudor. (Tr. 54, 69, 171; FDIC-18)
67. During the course of the meeting, the OFI Commissioner discussed the 8(a) proceedings pending against the Bank and indicated that packaging the arrangement between the Respondent and the Bank was the key to dealing with the FDIC. (Tr. 5556)
68. Due to the unusual and novel nature of the transaction between the Respondent and the Bank, on November 22, 1989, the Respondent wrote the OFI Commissioner setting the transaction out in detail for the Commissioner. (Tr. 5758, 60)
69. In addition to the OFI Commissioner, on November 22, 1989, the Respondent wrote a letter to Lear Oliver, an OFI examiner, presenting information the Respondent believed would support the appraisals on the collateral for the loans to his companies. (Tr. 61; FDIC-18)
70. At the end of November 1989, the bank examiners from the FDIC and OFI conducted a joint examination of the Bank. (Tr. 272; FDIC-3)
71. David Larry Bowen is the senior examination specialist for the FDIC's Memphis Region and was the examiner-in-charge of the FDIC's November 20, 1989, examination of the Bank. He testified at the hearing as a certified expert in banking. (Tr. 183-184; FDIC-3)
72. The disputed transactions were fully and accurately disclosed on First Bank's books. (Tr. 326)
73. Respondent had prepared a detailed business plan for the purchase of an insurance company that would specialize in providing insurance for persons recovering from alcohol and drug addiction. The business plan was supported by sophisticated actuarial data provided by a nationally recognized consulting firm. (Tr. 6869, 8386)
74. The classified loans purchased by Roger LeBlanc's companies would have been worth more to an insurance company than to a bank. (Tr. 7172, 16869)
75. Respondent was not an officer, director, controlling shareholder, consultant, agent, or independent contractor of the Bank. (Tr. 319-20)
76. In the transactions at issue, Respondent acted as a customer of the Bank and engaged in detailed, arm's length negotiations with the Bank over the terms and conditions of those transactions. (Tr. 4778; Tr. 7477; Tr. 9596)
77. Respondent exercised no authority or control over the Bank or its employees. (Tr. 132(Price); Tr. 423, 429(Denley))
78. The officers and directors of the Bank believed that the negotiations between Respondent and the Bank were at arms-length. (Tr. 131(Price)1 Tr. 168(Caplan); Tr. 422(Denley); Tr. 468(Vitt))
79. The officers and directors at the Bank believed that Respondent exercised no control or authority over First Bank or its officers, directors or employees. (Tr. 132(Price); Tr. 165(Caplan); Tr. 423, 429(Denley))
80. At the board meetings, Roger LeBlanc made presentations to the Board regarding the transactions and answered the Board's questions about the transactions. (Tr. 129(Price); Tr. 417(Denley))
81. In each instance where Roger LeBlanc attended a board meeting, after his presentation he was excused from the meeting and he did not participate in any of deliberations of the board. (Tr. 79(LeBlanc); Tr. 130(Price); Tr. 166-68(Caplan); Tr. 417, RR418(Denley))
82. The interest of Roger LeBlanc was in
{{5-31-96 p.A-2749}}borrowing money from First Bank and not in "recapitalizing" the Bank. (Tr. 72-73, 77)
83. There was no reference to a "recapitalization plan" in the minutes of the meeting of First Bank's Board of Directors. FDIC Ex. 14, Tr. 300(Bowen). Among the documents reviewed by the FDIC in its November 1989 examination and subsequently, there was not a single reference to a "recapitalization plan" involving Roger LeBlanc, his companies, or his associates. (Tr. 300)
84. Respondent and Jules LeBlanc played separate and distinct roles with the respect to the Bank. Tr. 120, 124(Price); Tr. 414(Vitt)) Jules LeBlanc was retained by the Bank to advise the Bank primarily on matters relating to the Louisiana OFI. (Tr. 125, 136(Price); Tr. 464(Vitt)) Respondent was never employed in any capacity by the Bank. (Tr. 319-20(Bowen))
85. Jules LeBlanc received a fee from First Bank for his services. Respondent received no fee of any kind from First Bank. (Tr. 98)
86. Jules LeBlanc disclosed in writing, on October 16, 1989, to John Marzullo, president of the Bank, Mr. LeBlanc had represented and might represent in the future certain of Respondent's companies and his associates. John Marzullo raised no objection and consented to such representation. It cannot be determined if oral notice was provided before that date, or whether Mr. Marzullo, or other Bank officers had knowledge of the described representation prior to receiving written notice. (FDIC-8)
87. On August 9, 1989, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") was signed into law. Pub.L.No. 101-73 (August 9, 1989). In one provision of this extensive legislation Congress expanded the category of prohibited persons in § 19 to include institution-affiliated parties. Respondent was unaware in 1989 that Congress amended § 19 to include institution-affiliated parties. (Tr. 6667)

CONCLUSIONS OF LAW

Respondent was not an "institution affiliated party" as that term is defined in 12 U.S.C. § 1813(u) and used in 12 U.S.C. § 1818(i)(2).
Dated this 7th day of June, 1995.